In the adult world, there are few things as confusing and potentially frustrating as income taxes. Impossible to avoid and notoriously dull, tax season strikes fear in the hearts of many. It doesn't need to be that way though. Tax software has made it easier than ever to prepare your own taxes, and you may be entitled to a larger return than you expect. When you file your taxes this year, remember to find out whether you qualify for these five deductions.
1. Student Loan Interest
If you've been paying the interest on your student loans, the lender should send you a Form 1098-E in the mail. This details how much you've paid in interest and allows you to claim a portion of the amount on your taxes. There are income limits to this deduction, however, so if you earn too much you may not be able to claim this deduction.
2. Moving Expenses
If you changed your residence by a distance of at least 50 miles last year, you qualify to deduct your moving expenses from your taxes. You can include such costs as gas, moving van rental and even deposits on your new utility accounts. Use Form 3903 to calculate your deduction, and file the form in conjunction with your Form 1040. Unfortunately, in order to make these deductions you cannot use the shorter Form 1040A.
While child support is not tax deductible, alimony payments are. You can deduct alimony for the year that you pay it, whether it is current or back alimony. To claim the deduction, you will need to use the Form 1040. Be sure that your ex-spouse's social security number is provided on the form.
4. Early Withdrawal Penalties
If you have a certificate of deposit and decide to cash it out early, your bank or financial institution will charge you a penalty of lost interest. The amount of interest you forfeit by withdrawing early can be deducted from your taxes. The amount of this deduction can be found in Box 2 of the 1099-INT you receive from your bank at the end of the year. Enter the deduction on your Form 1040 on Line 30. Bear in mind that this type of deduction does not extend to IRAs; if you make early withdrawals from your IRA, you will pay income tax on that money as well as pay a 10 percent penalty fee to the financial institution that holds the IRA.
5. Job Search Expenses
With so many people out of work in 2011, many are eligible to take this deduction. Deductible expenses include resume preparation costs, travel costs for interviews, and the expense of hiring a recruiter. These deductions can be taken only if the expenses equal more than two percent of your total adjusted income and relate to finding a job in your own field. If you changed careers during 2011, the deduction will not apply.
In order to take advantage of most deductions, you should use the Form 1040 rather than the much shorter 1040A. Most tax preparation software will allow you to compute these deductions relatively easily. Of course, you can hire an accountant or tax preparer instead to help you determine your deductions.
Before filing your taxes, be sure you have the necessary paperwork readily available. Any institution that has paid you money or that you have paid money to is a potential source of tax information. Necessary documents should be sent to you by the end of January, so it pays to be patient and wait for them to arrive before filing your taxes. Otherwise, you may miss an excellent opportunity to increase your tax return.
Jessica Bosari is a freelance writer and blogger for various publications and her own blog. You can read more of Jessica's work here. If you have any comments or questions about SavingTools or about saving money, leave your comments in the form below or email firstname.lastname@example.org. Thanks!